Published: Thu, July 11, 2019
Markets | By Otis Pena

France passes law taxing digital giants in defiance of U.S. anger

France passes law taxing digital giants in defiance of U.S. anger

It's for that reason that the U.S. government has ordered an inquiry into the new tax, with the potential to implement tariffs on French goods in retaliation.

U.S. Trade Representative Robert Lighthizer expressed concern that the tax, expected to be passed by the French Senate Thursday, July 4, 2019, "unfairly targets American companies".

Finance Minister Bruno Le Maire has said France isn't the only country advancing a tax on digital companies and that using the threat of "blackmail" to stop them is pointless. The probe was launched under Section 301 of the US Trade Act of 1974. The United States and the EU have threatened to impose billions of dollars of tit-for-tat tariffs on planes, tractors and food in a almost 15-year dispute at the World Trade Organization over aircraft subsidies given to USA planemaker Boeing Co (BA.N) and its European rival, Airbus SE (AIR.PA).

The French Senate estimated that the tax could bring in 400 million euros ($450 million) this year and 650 million next.

"France's move to enact a unilateral, national digital tax opens the door to a fragmented, inefficient global tax system that would reduce business certainty and impede innovation, job creation, and economic growth worldwide", Ms Jennifer McCloskey, vice president of policy at ITI, a United States tech-industry association, said in a statement this week.

France imposed a 3% additional tax on companies including Google and Facebook on Thursday, despite U.S. opposition. The measure would levy a 3 percent tax on certain revenue that major tech companies earn in France.

Le Maire said the tax would target some 30 companies, mostly American but also Chinese, German, Spanish and British, as well as one French firm and several firms with French origins that have been bought by foreign companies.

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The legislation - dubbed the GAFA tax - an acronym for Google, Apple, Facebook and Amazon - was passed by a simple show of hands in the Senate upper house after previously being passed by the National Assembly lower chamber.

Last month, top G20 finance chiefs meeting in Japan agreed there was an urgent need to find a global system to tax internet giants like Google and Facebook but clashed over how to do it.

"The United States will continue its efforts with other countries at the OECD to reach a multilateral agreement to address the challenges to the worldwide tax system posed by an increasingly digitized global economy", the USTR said in its statement Wednesday.

Bob Atkinson, president of the Information Technology and Innovation Foundation, issued a statement welcoming Mr Lighthizer's investigation.

France has hit back against United States plans to investigate a planned tax on big digital companies, saying it was free to decide how it applies taxes as a sovereign country.

Bloomberg Tax reported the investigation earlier, citing two people familiar with the matter.

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